Bank of Russia cuts key rate in February

Latest bank decision: At its first meeting this year, on 13 February, the Bank of Russia (CBR) decided to cut the key rate by 50 basis points to 15.50%. The cut was the sixth in a row and came as a surprise, as markets had largely anticipated a hold.

Monetary policy drivers: The decision to cut interest rates was primarily driven by inflation dynamics; despite an acceleration in price growth in January, underlying measures of current price growth did not change significantly, with the spike attributed to one-off factors, such as a VAT hike. The Bank of Russia expects disinflation to continue once the effects of these one-off factors fade and as domestic demand cools. Still, the Bank noted that inflation risks are tilted to the upside and include a more prolonged positive output gap—demand outpacing production capacity—elevated inflation expectations and a deterioration in terms of trade.

Policy outlook: The Bank of Russia indicated that it will assess the need for further key rate cuts in future meetings, based on the sustainability of the inflation slowdown and the dynamics of inflation expectations. It provided a baseline scenario for the average key rate to be in the range from 13.50% to 14.50% in 2026, pointing to further rate cuts this year but still-tight monetary conditions to ensure annual inflation declines to the target level of 4.0%. All our panelists expect at least 250 basis points of further cuts by the end of this year. However, the rate should still remain above the pre-war level. The Bank will reconvene on 20 March.

Panelist insight: EIU analysts commented on the outlook: “Although we expect the bank to remain cautious, we […] believe that faster economic growth experienced at the end of 2025 will ebb in the first half of the year and that the CBR will need to cut consistently to ease still-tight monetary conditions. Nonetheless, we agree with the central bank's assessment that the balance of risks tilts towards the pro-inflationary, and we are more likely to revise up our forecasts for inflation and average interest rates than to lower them.”

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